Trade costs are no doubt on many investors’ minds. Just like paying $4 for a Starbucks latte every morning adds up, so does paying $7, $8, $9 or $10 per trade. For the coffee drinkers who must have their morning brew, cost can be reduced dramatically at the expense of quality and taste. This exact philosophy holds true for online trading, which we will now explore.
To find the best broker for low-cost trading, we considered all the possible scenarios. Whether the trades involved 100 shares or 5,000 shares, one contract or 100 contracts, $5,000 in equity or $1 million in equity, we assessed it all. We also analyzed the actual net costs per month for casual investors who might make 10 stock trades each month or hyperactive traders who might place 100 stock trades and 50 options trades in one month. We also considered monthly minimums, platform fees, data fees, and other relevant costs.
While Interactive Brokers is very picky with its clients — the broker requires a $10,000 minimum deposit and encourages keeping accounts active by charging up to $20 per month between two minimum fees — it ultimately gives investors the best all-around deal for trading online.
When all data and possible scenarios are considered, the best pick in the category of Commissions & Fees is Interactive Brokers. While Interactive Brokers is very picky with its clients — the broker requires a $10,000 minimum deposit and encourages keeping accounts active by charging up to $20 per month between two minimum fees — it ultimately gives investors the best all-around deal for trading online. Flat-rate equity trades are $.005 per share ($1 minimum), options trades start at $.70 per contract, and mutual funds are $14.95 per trade. The broker charges no fees for exercising and assignments, and the margin rates are far lower than the nearest competitor.
Have at least $50,000? Then take a close look at Merrill Edge and its Preferred Rewards program which provides clients completely free equity trades.
However, while Interactive Brokers is the best all-around deal, there are numerous scenarios in which other brokers shine. For trading straight equities in large, several-thousand share increments, OptionsHouse, TradeKing, Just2Trade, and SogoTrade are the cheapest options. Have at least $50,000? Then take a close look at Merrill Edge and its Preferred Rewards program which provides clients completely free equity trades. If you like ETFs, then go for Charles Schwab, which currently has the largest selection (229 total) of commission-free ETFs. Lastly, if automated investing is your gig, then Capital One Investing is your best choice, as its ShareBuilder plan centers around just that.
The take-away here is this: When contemplating any broker switch or new account based on commissions alone, it’s critical to understand what type of trader you are first, then research from there. How many trades do you place per month, on average? What is your typical order size? Do you buy and sell options? Do you frequently trade on margin? Do you trade ETFs or mutual funds? These are all great questions to ask yourself.
Because, just like the brokers that shine for niche reasons, the opposite is also very true. Interactive Brokers offers the lowest margin rates, but if you trade with only cash, then this is negligible. If you only want to trade a few contracts per options trade, Lightspeed and TradeStation’s per contract rates look great, but both brokers charge an account service fee of $100 and $99.50 per month, respectively, if certain monthly activity thresholds are not met. Like mutual funds? Well, SogoTrade’s $25.00 rate appears attractive until you realize every order must be phoned in. There are countless examples, all with their pros and cons.
To find out the true cost of trading, don’t just trust our rankings, run the numbers yourself. Use the trading costs calculator here on the site, read our detailed commissions notes for each broker, determine if order execution quality is relevant for your portfolio, and then compare your top picks using the compare tool to make a final decision. Four-dollar lattes may be too expensive, but then $.99 brews from the local gas station are anything but delicious. In the end, it is about finding that happy medium where quality and price come together to offer you the most appetizing choice.